Summary Notes


In episode three of season eight of the Acquired podcast, hosts Ben Gilbert and David Rosenthal explore the remarkable journey of Meituan, a Chinese super app that has evolved far beyond its origins as a Groupon clone. Starting with founder Wang Xing's early ventures cloning Western social media platforms, the episode delves into how Meituan leveraged its expansive early-stage funding from giants like Sequoia China and Alibaba to survive the fierce "thousand Groupon war" and eventually merge with local services review platform Dianping. The merger, orchestrated amidst a backdrop of strategic investments and proxy battles between Tencent and Alibaba, created a powerhouse that dominates China's online-to-offline economy. Meituan's AI-powered platform now encompasses a vast array of services, including food delivery, ride-sharing, travel booking, and merchant analytics, reflecting a successful model of scaling and monetizing customer interactions across multiple verticals. The story of Meituan is one of innovation, strategic maneuvering, and the rise of a tech behemoth that has outpaced its Western counterparts in creating a truly integrated digital and physical consumer experience.

Summary Notes

Introduction to Acquired Podcast Season 8, Episode 3

  • Ben Gilbert and David Rosenthal introduce themselves and their professional roles.
  • Ben Gilbert announces his new role as managing director and the new $100 million early-stage fund for Pacific Northwest entrepreneurs.
  • David Rosenthal is an angel investor based in San Francisco.
  • The episode is set to discuss a Chinese app that began as a Groupon clone and has become a multifaceted tech giant.

"I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures." "And I'm David Rosenthal, and I am an angel investor based in San Francisco."

These quotes introduce the hosts and their professional backgrounds, setting the stage for the episode's discussion on a Chinese super app.

The Rise of Meituan

  • Meituan started as a Groupon clone by a founder with a history of cloning successful Western tech companies.
  • The app has evolved into a multifaceted platform offering services like ride-sharing, food delivery, merchant analytics, fintech, travel booking, and more.
  • Meituan is considered a super app and has become China's third-largest tech company.

"But this bike-sharing, Yelp-esque Doordash of China is much more than a clone. This AI-powered delivery company is also a ride-sharing company. It's a real-world supermarket, a merchant analytics platform, a fintech platform for those merchants who need loans, a travel booking app for consumers, and a way to buy cheap movie tickets."

This quote describes the diverse range of services offered by Meituan, highlighting its evolution from a simple clone to a super app with a wide array of functionalities.

The Super App Concept

  • The concept of a super app is unfamiliar in the West but is a significant phenomenon in China.
  • Meituan has been compared to a combination of various Western services like DoorDash, Airbnb, Square,, Expedia, Uber, Instacart, Fandango, and Safeway.

"So Matwan is what people have dubbed a super app."

This quote explains the term "super app" used to describe Meituan, a platform that integrates multiple services into one app, a business model that is more prevalent in China than in the West.

Meituan's Background and Founding

  • Meituan's founder, Wang Xing, started by cloning Facebook and Twitter for the Chinese market.
  • The company was founded in 2010, with Sequoia China and Alibaba as early investors.
  • Meituan faced intense competition from thousands of other Groupon clones in China but survived by expanding to tier two and tier three cities.

"In March 2010, Wangxing and the team incorporate Mei Tuan, coming from May, which means beautiful, and tuan, which means together, beautiful together."

The quote provides the etymology of Meituan's name and marks the official founding of the company, which would later become a significant player in the Chinese tech industry.

The Role of Dianping

  • Dianping was founded in 2003 as a reviews platform for restaurants, preceding Yelp.
  • Despite not initially being a Groupon clone, Dianping became involved in the group buying space during the Groupon war in China.
  • Dianping's focus on reviews for restaurants and specific dishes gave it a strong data asset and competitive advantage.

"So people sort of derisively at the time would call dianping the Yelp for China, but a, it wasn't is way more than Yelp and B, Yelp was the dionping for the US because Dianping was founded in 2003 and Yelp was founded in 2005."

This quote clarifies the misconception of Dianping being a Yelp clone and highlights its earlier founding and broader scope of services, which later contributed to its merger with Meituan.

The Groupon War and Meituan's Survival

  • The Groupon war in China saw thousands of clones competing fiercely, with most failing.
  • Meituan's strategy to target smaller cities and the backing of major investors like Sequoia and Alibaba helped it survive the intense competition.

"There were 5000 companies at one point, 20 to 30 new Groupon clones getting started every single day in China, including Groupon itself, which did a JV with Tencent."

This quote emphasizes the extreme level of competition in the Chinese group buying market, where Meituan managed to emerge as one of the few survivors due to strategic decisions and strong backing.

Detailed Ratings and Discovery on Dianping

  • Dianping offers a unique approach to restaurant ratings by allowing users to rate individual dishes.
  • Categories such as food, decor, and service can be individually rated for a more nuanced understanding of a restaurant's quality.
  • The platform provides actual average check prices, unlike vague price indicators like dollar signs on other review platforms.
  • Dianping emphasizes visual content, including photos and short videos, for better discovery of restaurants.

"You can also rate and see category ratings for each restaurant. Like the food, the decor, the service." "So on dianping, you see the actual average price of checks, of bills at restaurants."

These quotes highlight the platform's commitment to providing detailed and practical information on restaurants, which allows for a more informed decision-making process for consumers.

Yelp's Inadequate Execution

  • Yelp has not performed well as a public company in the last five to ten years.
  • The platform's inability to provide detailed insights into why a restaurant is rated a certain way has been a point of criticism.

"I think it's safe to say Yelp has just not executed well as a public company in the last five to ten years." "Every restaurant is a four-star restaurant. Why is it four stars?"

These quotes discuss Yelp's shortcomings in providing useful and detailed reviews, as well as its lackluster performance as a public company.

Dianping's Integration and Expansion

  • Dianping integrates various services such as reservations, ordering ahead, and discounts directly on its platform.
  • The platform's success in Shanghai led to expansion into other tier-one cities and attracted significant investment from Sequoia China and Google.

"You can also book a reservation at a restaurant. You can order ahead what you want to eat at the restaurant, you can get discounts at the restaurant." "Dianping takes off, spreads like wildfire in Shanghai, and then bleeds out to other kind of tier one, coastal elite cities."

The quotes emphasize Dianping's comprehensive service integration, which simplifies the consumer experience and contributed to its rapid growth and appeal to investors.

Investment Dynamics

  • Sequoia China and Google were early investors in Dianping, with Sequoia China being one of the first to invest in the platform.
  • Google's investment in Dianping was strategic, given the similarities in their advertising models.

"They raised $1.5 million from Neil Shen in 2006." "It is Google, yes. Tech giant, strategic investor in China."

These quotes highlight the investment history of Dianping, showcasing the early recognition of its potential by prominent investors like Sequoia China and Google.

The Group Buying Era and Strategic Shifts

  • The rise of group buying led to increased competition in the food and restaurant market, with many new entrants.
  • Dianping and Meituan emerged as the main players after the group buying craze, leveraging their existing platforms and customer insights.

"They've had the food and restaurant market in China, at least in tier one cities, the Internet, food and restaurant market, completely to themselves." "They have more touch points with consumers so we can, in theory, acquire consumers better."

These quotes reflect on the intense competition during the group buying era and the strategic advantages held by Dianping and Meituan due to their established customer relationships and data assets.

The Emergence of Food Delivery Services

  • The transition to mobile technology facilitated the emergence of food delivery services in both China and the US.
  • Meituan and Dianping capitalized on their existing networks and infrastructure to enter the food delivery market.

"They both go hard into basically converting this failed group buying business into a food delivery business." "It's about the labor supply that has mobile phones, that we can now bring on these gig economy laborers and direct them and coordinate them in a way that was completely impossible before."

These quotes discuss the strategic pivot from group buying to food delivery, highlighting the role of mobile technology in enabling this new business model.

The Merger of Meituan and Dianping

  • The merger between Meituan and Dianping created a powerful entity in the food delivery and local services market.
  • The merger was a strategic move to consolidate market share and eliminate intense competition.

"Meituan and Dianping announced that they're merging." "The strategic weight is behind Ulema."

These quotes mark the significant event of Meituan and Dianping merging, which had major implications for the market dynamics and competition with other players like Ulama.

Alibaba's Strategic Moves

  • Alibaba invested heavily in Ulama after selling its stake in the merged Meituan Dianping entity.
  • The investments by Alibaba were aimed at competing in the lucrative food delivery market and defending its e-commerce territory.

"Alibaba invests one and a quarter billion dollars into Ulema for a 25% stake right off the bat." "Alibaba buys the rest of the company, does a wholesale acquisition of ulama for nine and a half billion dollars."

These quotes detail Alibaba's aggressive investment strategy in Ulama, demonstrating its commitment to gaining a foothold in the food delivery sector and competing with the Meituan Dianping powerhouse.

Strategic Importance of Dianping in Meituan's Business Model

  • Dianping provides a compelling reason for consumers to use Meituan's app, creating deeper engagement than just food delivery.
  • The integration of reviews and other services transforms Meituan into a "super app," enhancing user experience and offering multiple services.

"It's the dianping part of the business that's so strategic. Consumers have this reason to come to the app and engage with it much more deeply than you would if you're just ordering food delivery."

The quote highlights the strategic role that Dianping plays in Meituan's business model, as it not only attracts consumers but also encourages deeper engagement with the app.

Inefficiencies in Using Multiple Platforms and the Benefits of Integration

  • Users typically switch between different apps for ordering food and reading reviews, which is inconvenient.
  • Meituan's integrated platform offers a solution by consolidating ordering and review functions, thereby improving user experience.

"I am bouncing back and forth between the two. It makes so much sense for that to be one platform."

This quote emphasizes the inconvenience users face when using separate platforms for services that could be integrated, suggesting the appeal of Meituan's all-in-one platform approach.

The Challenge of Implementing Reviews in Food Delivery Apps

  • Food delivery apps like DoorDash and Uber Eats have a conflict of interest when it comes to providing honest reviews, as they partner with restaurants.
  • Yelp is considered more neutral, but even its reviews are not entirely reliable.
  • Meituan's extensive review system, inherited from Dianping, offers detailed insights down to the dish level.

"I've talked to people in the past at both of those companies, and I'm like, guys, I need reviews. Why don't you give me reviews? Just give me reviews in the product."

The quote underlines the demand for reliable reviews directly within food delivery apps, which is a challenge due to potential conflicts of interest with partner restaurants.

Meituan's Expansion into Travel and Other Services

  • Meituan has successfully expanded into travel, achieving a significant market share in China.
  • The company's travel business has better margins than food delivery, contributing substantially to its profitability.
  • Meituan also offers a wide range of services, including local events, home services, transportation, and grocery delivery.

"Travel is huge for them, and importantly, has a much better margin structure than food delivery."

This quote explains the importance of Meituan's travel business, highlighting its contribution to the company's overall profitability due to better margins compared to food delivery.

Tencent's Role and the WeChat Ecosystem

  • Tencent, through its investment in Meituan and its WeChat platform, benefits from the success of Meituan's services.
  • Meituan's mini program on WeChat allows users to access its services within the WeChat app, contributing to Tencent's dominance in China's tech ecosystem.

"A lot of people use the Matwan app that you can download from whatever App Store you're using on whatever phone you're on. Just as many, if not more people use the Metwan mini program on WeChat."

The quote highlights the symbiotic relationship between Meituan and Tencent's WeChat, where both companies benefit from user engagement with Meituan's services through the WeChat platform.

Meituan's Growth and Market Position

  • Meituan has experienced rapid growth, reaching millions of daily transactions and a large user base.
  • The company has gained a dominant position in food delivery and other service sectors, leading to significant revenue and profitability.
  • Meituan's IPO and subsequent market valuation reflect its status as a leading tech company in China.

"By 2018, they have 600 million active users. They have over 50% market share of food delivery. They're crushing ulama. They do over $10 billion in revenue, growing 100% year over year."

This quote details Meituan's impressive growth metrics, showcasing its dominant market position and exponential revenue increase.

The Impact of Covid-19 on Meituan's Business

  • The pandemic had a mixed impact on Meituan, with its travel business suffering but other areas experiencing growth.
  • Despite initial setbacks, the company's revenue recovered, and its stock value increased significantly.
  • Meituan's diverse service offerings allowed it to leverage the shift towards online commerce and delivery platforms during the pandemic.

"Covid was an unalloyed good for DoorDash, it's a little more complicated for Matwan."

The quote acknowledges the complexity of the pandemic's impact on Meituan, contrasting it with the straightforward benefit experienced by DoorDash.

Meituan's Business Model and Profitability

  • Meituan's profitability is attributed to its ability to cross-sell services and leverage customer acquisition costs across multiple revenue streams.
  • The company's growth in profits and transactions per user highlights the effectiveness of its super app model.
  • Meituan's investment in new initiatives, such as grocery stores, further drives its revenue and market position.

"They just kind of figured out, oh, there's where the operating leverage is in our business."

This quote reflects the realization of Meituan's potential to maximize profitability through its diverse service offerings and customer base.

Hypothetical Scenario: What if the Companies Didn't Merge?

  • Only one company would have survived if the merger did not occur.
  • Both companies were not profitable and continued capital raising would lead to eventual business failure.
  • A high stakes game of chicken was being played regarding the right time to merge and how much dilution to accept.
  • Tao Zhang discussed the long-term discussions about merging on the evolving for the next billion nine nine six podcast.

"They both could have raised one more round of capital and then merged, or one of them could have raised one more round of capital and then they would have squashed the other one."

This quote emphasizes the competitive nature of the situation, where the companies had to decide between merging or facing the risk of being outcompeted by the other.

E-commerce and Real World Services Market Growth

  • E-commerce had 20% saturation in 2017, while real world services had only 5%.
  • There was significant opportunity in the retail services industry, with vast potential for growth.
  • Meituan emerged successful in leveraging the offline to online (O2O) movement to become a top Chinese tech company.
  • The low penetration rate in 2017 suggested a large market opportunity ahead.

"So ecommerce in 2017 was a 20% saturation industry, and it saturated 20% of all commerce. Real world services was only 5%."

The quote highlights the market potential in real world services compared to the more saturated e-commerce market, suggesting a strategic growth area for companies like Meituan.

Digital Transformation and Consumer Experience

  • There is a belief that everything can come online, with no limits to what can be digitized.
  • Meituan's approach to online services covered a wide array of activities, improving customer experience and convenience.
  • Betting on tech companies to digitize services traditionally offered by incumbents is a prevailing investment thesis.
  • China's rapid online population growth enabled innovative digital transaction models.

"Any activity you want to do, any store you want to visit, you pay with Meituan in a store, you want to go shop in a local grocery store in the equivalent of a Safeway. Cool. That's cool. Do it with the Meituan app while you're there in the store."

This quote illustrates the comprehensive nature of Meituan's platform, offering a seamless digital experience for various consumer activities, reflecting the digital transformation trend.

Vertical Integration and Customer Experience

  • Meituan's vertical integration strategy allowed for a better consumer experience and increased profitability.
  • The company's ability to offer diverse services to its customer base contrasts with American companies that often stick to their core offerings.
  • Meituan's success is ironic given that it initially copied US business models but has now surpassed them in terms of integration and customer experience.

"The vertical integration not only creates a business that can capture more profits, but also a better consumer experience."

The quote summarizes the benefits of Meituan's business strategy, where vertical integration leads to both increased profits and an enhanced experience for consumers.

Tencent's Unique Strategy and Investment Leverage

  • Tencent's strategy included being both a financial investor and a strategic partner, providing capital and traffic to companies.
  • Tencent's influence and capital allowed it to push competitors out of business and secure significant stakes in successful companies.
  • The role of Tencent reflects a unique approach not commonly seen in the US, potentially due to antitrust concerns.

"Tencent is like the most interesting man in the world, because Roblox is entering China with a JV. With Tencent, it's like, I don't always enter China, but when I do, I enter with Tencent."

This quote captures the powerful position Tencent holds in the Chinese market, where its partnership is almost essential for foreign companies entering the market.

Growth of China's Middle Class and Wealth Diffusion

  • The increasing middle class in tier two and tier three cities in China opened up new markets for technology and app-based services.
  • Wealth diffusion to even lower-tier cities and rural areas expanded the addressable market for companies like Meituan.
  • Community group buying is a trend that taps into the growing purchasing power of the wider population.

"The fact that tier two and tier three cities became an addressable population that could spend on things like smartphones and then things that were apps on smartphones wouldn't have been possible a decade, two decades before this came online 100%."

This quote indicates the significance of the growing middle class in expanding the market for tech companies and the role of smartphones in driving app-based service adoption.

Antitrust Considerations in China

  • The potential for monopolistic practices raises questions about antitrust regulation in China.
  • The Chinese government's approach to antitrust may differ from the US, potentially influenced by political considerations.
  • The risk of government intervention is a significant factor in the investment thesis for companies operating in China.

"That's a good question. Honestly, that's probably the biggest risk from an investment thesis standpoint of anything in China. Which is. I don't know, but I think it basically, the way it works is whatever the communist party wants to do, right."

The quote reflects the uncertainty regarding antitrust enforcement in China and acknowledges the Communist Party's influence on business practices.

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